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Nedgroup Investments | 6 February 2018

Three years on since the launch of tax-free investments in South Africa, they are proving to be an excellent incentive to encourage a much needed savings culture in the country. As anticipated legislation enabling the transfer of TFI products and the increased annual limits to TFI contribution takes effect, asset managers anticipate the growth to continue.

This is according to Donna Barnes, Head of the Direct Channel at Nedgroup Investments who says the asset management industry growth in TFI adoption over the past three years indicates a real and growing awareness amongst South Africans of the importance of long-term saving.

Nedgroup Investments has seen inflows of approximately R305m in over 10,000 tax-free investment accounts since the product was launched. The Intellidex report, released in mid-2017, on the success of TFI showed that Nedgroup Investments had already gained 19% share of the local Collective Investment Scheme industry for tax free investments.

“We have had, on average, 114 new tax-free investment accounts opened each month since inception. These tend to spike in the months of February and March as people take advantage of the end of one tax year and the beginning of the new one.

What is even more encouraging is that approximately 60% of these investors at Nedgroup Investments opened their TFI with the full allowance, enabling them to take full advantage of the long-term compounding effects that the product was designed to deliver to investors,” she says.

Barnes believes that all South Africans stand to gain by considering tax-free investments. She calls it the ‘no brainer’ investment. “With tax-free investments, investors are able to invest a relatively small amount of money and take advantage of the medium- to long-term benefits of compounding, without paying any tax on interest, dividends or capital gains. The additional tax savings these investments offer can also add up and compound over time growing into a substantial investment,” she explains.

“Our calculations show that if an investor sticks to this monthly discipline of maximising contributions to their TFI for five years in a low equity balanced fund, their R165,000 contribution can be worth just over R200,000, or over a 10-year period their R330,000 contribution can reach to just over R500,000 – not subject to any capital gains tax (CGT) at withdrawal. This means the investor will be able to put the full expected value in their pocket, unlike withdrawing from a normal unit trust investment.”

Barnes says Nedgroup Investments anticipates that enhancements to the legislation to allow transfers between TFI vehicles (expected in March 2018) will make it easier for investors to choose TFI products that are most suitable for the individual requirements. She believes this is likely to further encourage the adoption of TFI in 2018.

Barnes also expects a new digital on-boarding offering from Nedgroup Investments which is due to launch in February to boost the adoption of tax-free investments going forward. “Not only will investors be able to switch from one product to another, but from February, they will also be able to open up a TFI with Nedgroup Investments completely digitally with no paperwork, electronic FICA and the ability to sign electronically. This is a first in the asset management industry.